MERCOSUR: Venezuela’s presidency vetoed - its future in the bloc is uncertain

Latin America Alert

Argentina, Brazil, Paraguay and Uruguay, the founding countries of MERCOSUR, South America’s trade bloc, signed a “Joint Declaration for the operation of the MERCOSUR and the Protocol of Adhesion of the Bolivarian Republic of Venezuela to the MERCOSUR” on September 13, 2016.

The Declaration prevents Venezuela from taking its turn as president of MERCOSUR and threatens to suspend Venezuela unless it meets the organization’s membership obligations by December 1, 2016.

Expulsion from the trading bloc could further isolate Venezuela.

Background

The MERCOSUR presidency rotates among the bloc’s main members every six months, in alphabetical order. In July, it was Venezuela’s turn, but the Argentina, Brazil, and Paraguay blocked Venezuela from assuming the position. At the time, Uruguay took the position that the pre-established order should be followed and the founding members agreed revisit the issue.

All founding members have now agreed that Venezuela should not take on the rotating presidency. Instead, the position will be filled this term by a commission of coordinators from the founding countries.

The Protocol of Adhesion admitting Venezuela to MERCOSUR was signed between Argentina, Brazil, Paraguay, Uruguay and Venezuela on July 4, 2006. Venezuela became a full member of MERCOSUR, with all the rights and obligations inherent to this status, on August 12, 2012, 30 days after the Protocol was ratified by the five signatory countries and deposited with the organization.

The same Protocol of Adhesion established that Venezuela had the obligation to adopt, over time, the entire set of rules of MERCOSUR − estimated to encompass more than 300 standards. From the date that the Protocol of Adhesion entered into force, Venezuela had four years to comply. That period expired in August 2016.

Obligations breached by Venezuela

The set of rules that Venezuela needed to adopt as a result of its incorporation into MERCOSUR includes a significant group of trade treaties and protocols and agreements that require parliamentary approval to be incorporated into Venezuelan domestic law. In addition, Venezuela should also have adopted the common nomenclature of MERCOSUR and the bloc’s external common tariff, adjusting its domestic legislation to MERCOSUR regulations, to facilitate import and export operations and to enjoy free trade with all MERCOSUR member countries. In the four years since its entry into the bloc, Venezuela’s progress in meeting those obligations has been slight.

What is happening instead

In the first half of this year, the rotating presidency of MERCOSUR was held by Uruguay. Venezuela was scheduled to take on the rotating presidency for the second semester of 2016. However, the other member countries blocked Venezuela from taking on that role, due to Venezuela’s failure to fulfill its legal obligations to the bloc as well as objections to Venezuela’s human rights record and democratic deficits. Instead, in agreeing that Venezuela should not take on the rotating presidency, the bloc’s chancellors decided that the position will be filled for the rest of 2016 by a commission of coordinators from the founding countries.

MERCOSUR continues, but the future of Venezuela inside the bloc is uncertain

The veto against Venezuela, some observers note, could have swiftly crippled MERCOSUR or could even have destroyed it entirely. The news agency MercoPress quotes Jose Luis Cancela, Uruguay’s foreign minister, stating that if Uruguay had not supported the Joint Declaration, “MERCOSUR would have been launched into a period of full paralysis.” Venezuela initially reacted negatively, calling the Joint Declaration “deceitful,” but it has also announced that is willing to dialogue with its MERCOSUR partners.

At this point, it appears that the consensus reached in the Joint Declaration has effectively ensured the continuing operation of economic and commercial matters of MERCOSUR − the most important commercial bloc in Latin America − as well as its negotiations with other countries and groups of countries, in particular the free trade agreement that MERCOSUR is negotiating with the European Union.

The Joint Declaration grants Venezuela an extension of time to fulfill its obligations under its Protocol of Adhesion. That extension has been interpreted by some analysts as an ultimatum. If by December 1, 2016 Venezuela does not fulfill the commitments it made in joining MERCOSUR, it may be suspended from the bloc.

However, should such a suspension actually come about, potential terms are unknown. There is only one legal support for such a suspension, and even that one is not clearly relevant: MERCOSUR’s 1998 Ushala Protocol, which states “that a member state may be suspended in case of a ‘rupture of the democratic order’ in that state.” How and whether this protocol could be applied in this instance remains unclear.

What next?

It seems unlikely that Venezuela can catch up with its unfulfilled obligations in the short term set out in the Declaration. However, some chancellors of the founding countries have affirmed that there is no interest in expelling Venezuela from MERCOSUR. They say that when the new deadline expires on December 1, 2016 they will see where things stand and then decide on next steps.

Learn more about the implications of the Joint Declaration by contacting any of the authors.

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DLA Piper is a global law firm with lawyers located in more than 40 countries throughout the Americas, Europe, the Middle East, Africa and Asia Pacific, positioning us to help clients with their legal needs around the world.